Why a Pre-approval is Needed to Buy a House
The internet has made it extremely easy for people to look at properties that are available for sale even if they do not have a pre-approval. In fact, over 90% of all home searches begin on the internet before a Realtor or loan officer is contacted. The problem with the internet is that many people do not know what they can afford and what they cannot afford so much time is wasted looking at properties that are not within a person’s budget.
Many years ago, pre-approvals and pre-qualifications were a rarity. People would make an offer on a property and then go to the bank after they had it under contract. If the bank denied the loan or if the bank told them they could not afford the house, the buyers would walk away. This is not the way today, most people will not even take an offer without a pre-approval or pre-qualification letter and this is why:
The market moves quickly
There are thousands of resources and websites available to sellers and buyers so it is very easy to get a property in front of the public. Buyers are no longer relying on their agent to call them or send them faxes with the latest properties. People that are motivated to buy a house get push notifications from websites and texts from agents to see potential properties as quickly as possible. Good deals do not last long in this market since everything is so easily accessible. If a buyer waits two days to look at a new listing, it might not be available.
That is why sellers will more than likely reject an offer is the buyer i
s not pre-approved or pre-qualified. If they accept an offer from a buyer with no pre-approval, the property could get tied up for weeks and the buyer may not even be able to purchase it. This means that the seller might have missed an opportunity with a pre-approved buyer who ended up putting a contract on another property.
Know what price point you can afford
More people are focused on their monthly payment and not the purchase price. The reason is because most people know what they can afford on a monthly basis. It is good to know what a $200,000 house monthly payment will be compared to a $250,000 house. People also have to take into consideration how much money they will need to put down to qualify. Some people may qualify for a $300,000 home but only have enough money down for a $200,000 house. That is why it is important to strategize with a loan officer and see what options you have available with your down-payment. An FHA loan for example typically only requires 3% down in most areas. Read home credit myths for buying a house here.
Pre-approval vs Pre-qualification
Pre-approved and pre-qualified are not the same thing. A seller will typically choose a pre-approved buyer over a pre-qualified buyer because a pre-approved buyer means that they have been evaluated by the loan officer and an underwriter. A pre-qualified buyer has only been looked at by one person, the loan officer.
Many loan officers do not like to do the work of pre-approving someone if they do not have a house under contract. This is because it takes more time and resources, but if you want to really be a strong buyer, you should get a pre-approval. If you want to get a pre-approval and the loan officer won’t do it, get a new loan officer. Not only will you have a better chance to get the house you want since you are a stronger buyer but you will have peace of mind knowing that the deal won’t fall apart last minute if the loan officer missed something.
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